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Butter and cheese help dairy commodity prices stabilise

News19 Jul 2017by Newsdesk

The latest Global Dairy Trade (GDT) auction has seen prices stabilise after two successive decreases ended the run of dairy price growth seen since March this year. But Skimmed Milk Powder (SMP) values are not enjoying the same strength of recovery as for butter and cheese.

The July 18th auction saw a 0.2% increase in the GDT price index to $3,387/metric tonne, following falls of 0.2% on July 4th and 0.4% at the June 20th event. The latest round saw butter values increase by 3.4% to $6,004/ton and cheddar cheese by 1.6% to $4,112/ton. No milk powder was traded at the auction.

The USDA said the most notable change is the rapid rise in butter prices "which have climbed from a mid-point low of $2,650/ton FOB for Oceania and EU to a current mid-point price at about $6,100/ton FOB – a 130% increase".

Global butter supply tightens

The Department attributes the change to a tightening of world supplies as demand remains steady, particularly in the US and the EU. It also noted a rise in demand "fuelled by consumers who now perceive butter as a safer alternative to vegetable oil substitutes such as margarine".

Butter prices are likely to retain their strength, as international shipments to April 2017 from the world's major exporters – New Zealand, the EU, Belarus, Australia, and the US – are some 17% behind last year's volumes. The EU volumes alone have fallen by 28%.

The drop in global traded butter volumes follows five years of export growth - between 2012 and 2016, butter exports from these major suppliers grew at an average 4% per annum.

SMP prices relatively soft

There is a downside. The USDA warned: "While high prices of butter will be welcomed by dairy farmers this will likely induce further production of butter and its co-products, mostly in the form of SMP. This will add to SMP supplies and likely temper any recovery in prices".

While SMP prices have recovered over recent months in line with other dairy commodities, high stocks mean they remain "relatively soft" at levels below $2,000/ton, the USDA continued. "Import demand has been insufficiently strong to significantly draw down the readily available stocks and exportable supplies in the US and the EU.

A trading update for listed UK milk processor Dairy Crest ahead of the release of full financials for the first three months shows a 7% sales increase from its key butter and cheese brands.

"Cream prices, which determine input costs for the butter business, have increased substantially during the first quarter," it warned. "This will put pressure on margins in our butter business - we have reduced our promotional activity which is adversely impacting volumes but mitigates some of the margin pressure." The share price was up 8.6p to £585.6.